On the escalation of India-Pakistan tensions, which has been an unfortunate event, according to Naveen Kulkarni of Axis Securities, there will be some impact on the economy if the challenges persist, but it is more likely that the current tensions will be short-lived.
In that circumstance, he feels the impact on the market will also be short-lived. The Indian equity market has demonstrated resilience and should come out stronger, he believes.
After catch-up rally in April, the Chief Investment Officer at Axis Securities said a market rally from here would depend on earnings growth and the evolving macroeconomic scenario, which is getting better. While it will be difficult to forecast the nature of the rally, double-digit returns in the early teens are very much possible over the next 12 months from the broader market, he added.
What is your take on the escalated India-Pakistan tensions? Do you see further significant correction?
The escalation of India-Pakistan tensions has been an unfortunate event. There will be some impact on the economy if the challenges persist, but it is more likely that the current tensions will be short-lived. In that circumstance, the impact on the market will also be short-lived. The Indian equity market has demonstrated resilience and should come out stronger.
Do you believe consumption-based companies will outperform capex-heavy companies going forward?
This is a tough call to make at this point in time, as the results from the consumer sector have been a mixed bag, and the commentary from large companies like Hindustan Unilever has not been encouraging. However, consumer companies have a softer base in the forthcoming quarters, which means that growth is likely to look better.
On the other hand, the macro factors for capex-heavy companies have been a little more encouraging. Many mid- and small-cap companies, like Voltamp or Elecon, have reported good numbers in the Q4 FY25 earnings season. Also, the guidance for FY26 has been inspiring. Thus, in the medium term, the capex-heavy companies could still outperform the consumption-based companies.
Do you strongly believe that FII outflows have bottomed out, although this may not necessarily lead to a resurgence in inflows for the rest of 2025?
One of the key elements for FII flows is the rupee-dollar equation, which has become stable. Moreover, economic growth is showing signs of pickup, while inflation remains under control. All the macro factors are now pointing towards FII inflows; thus, it’s very likely that FII outflows could have bottomed out. However, global macro factors change very quickly, and we could see outflows, but it is more likely that the serious challenges of the outflows have bottomed out.
Do you still see significant earnings risks in the coming quarters?
The risks to earnings will remain, but some of the challenges regarding growth have started to recede. However, the global scenario continues to be challenging. This could pose risks to earnings in the medium term. Domestic factors are under better control, and thus risks have been broadly reduced.
Do you think trade deals may take several more months, despite the US administration indicating they are nearing completion?
This is a difficult case to assess. The trade deals may not take more time, as we are already seeing agreements with some other developed economies. Thus, it’s very likely that many aspects of the deal could materialize sooner than later.
Do you believe the market rally from here on may not be as sharp as the one recorded in April?
The rally in April was a catch-up rally, as the market was in oversold territory and still continues to remain in that zone. A market rally from here will depend on earnings growth and the evolving macroeconomic scenario, which is getting better. While it will be difficult to forecast the nature of the rally, double-digit returns in the early teens are very much possible over the next 12 months from the broader market.
What are the key challenges for the equity market for the rest of 2025? Do you expect the US dollar to stabilise at current levels following its sharp fall since mid-January?
The US Dollar has stabilized versus the INR, but the global macro scenario is challenging. China will have excess capacity because of the tariffs, which could result in their currency devaluation and, in turn, result in deflationary headwinds globally. This could impact India as well, posing the biggest challenges for businesses in the country. Nonetheless, the situation remains fluid, and overall, India’s scenario appears more constructive because of domestic consumption and the possibility of better trade deals.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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